[Analysis of Top 3 Private Equity Funds]②Han&Company: The Steadfast Strength of a Chimney Industry Leader

Accumulating Investment Know-How in Heavy Industries and Diversifying Investments
Attractive Assets like SK Shipping... Ssangyong C&E Poses a Dilemma

Editor's NoteDue to concerns about domestic and international economic downturns, major players in the domestic capital market have focused on risk management rather than 'big deals' throughout this year. Although the market contracted this year, there is a forecast that if the crisis is well overcome next year, opportunities will arise. As we wrap up this year and prepare for the new year, Asia Economy analyzed the investment portfolios of major domestic private equity funds from the perspectives of Strengths, Weaknesses, Opportunities, and Threats. We examined what risk factors they face, the strategies to overcome weaknesses, and new growth engines.

[Asia Economy Reporter Park Soyeon] Han & Company (hereafter Han & Co) is one of the top-tier private equity funds (PEF) in Korea. It has earned the nickname "Chimney Industry Powerhouse" by accumulating investment know-how in the heavy industry sector. Recently, it has been expanding its portfolio into various business sectors. Since raising its first fund worth 890 billion KRW in 2011, it has actively entered the mergers and acquisitions (M&A) market. Through vigorous M&A activities, the total assets of companies invested by Han & Co currently amount to approximately 47.8 trillion KRW, with total sales exceeding 18.6 trillion KRW. The workforce employed reaches 30,000 people.

▶Strength=At a time when Korea's top shipping company HMM is considering privatization, Han & Co's shipping companies are mentioned as promising acquisition targets to complement HMM's business structure. HMM recently holds more cash than its market capitalization due to the favorable shipping market conditions. Han & Co's H Line Shipping has long-term contracts with POSCO, Korea Electric Power Corporation, Hyundai Glovis, Korea Gas Corporation, and others, transporting iron ore, coal, LNG, etc., generating stable profits, making it an attractive asset. SK Shipping, which operates crude oil tankers, gas carriers, and bulk carriers, is also a company that HMM would be interested in acquiring.

▶Weakness=The sale of Hanon Systems, which emerged in the M&A market last year and was valued at up to 8 trillion KRW as a 'big fish,' is currently stalled. The rapid rise in interest rates and exchange rate fluctuations have frozen the financial market, causing the Hanon Systems sale process to drift, and funding has become difficult. Domestic credit rating agencies have downgraded Hanon Systems' credit rating from 'AA' to 'AA-'. This is due to deteriorating financial soundness caused by semiconductor supply shortages and production disruptions in Europe and China, which have worsened performance. Currently, the 50.5% stake held by Han & Co in Hanon Systems and the 19.19% stake held by Hankook Tire & Technology are up for sale. In 2015, Han & Co and Hankook Tire & Technology acquired a 70% stake in Hanon Systems for about 3.94 trillion KRW.

▶Opportunities=Han & Co is putting the used car trading platform company K Car up for sale to recover its investment. After K Car was listed on the Korea Exchange in October last year, the one-year lock-up period expired, and the sale process is now being actively pursued. K Car was acquired by Han & Co in 2018 from SK, which involved purchasing SK Encar's direct sales division (offline used car business). The acquisition price at that time was approximately 220 billion KRW. Currently, K Car's market capitalization is about 600 billion KRW. Han & Co holds a 72% stake in K Car. The sale price is expected to be determined at a level that includes a management premium on top of a market value exceeding 400 billion KRW. Han & Co also sees this as an opportune time to sell SK Ecoprime, Korea's leading biodiesel company. With the strengthening ESG (Environmental, Social, and Governance) trend, demand for SK Ecoprime's main product, biodiesel, is increasing. The sale price is mentioned to be over 500 billion KRW.

▶Threats=Due to the cooling of the real estate market, Ssangyong C&E, Korea's largest cement manufacturer, has entered an emergency management system. It is impossible to recover investment funds through conventional methods. Accordingly, Han & Co sold its entire 77.68% stake in Ssangyong C&E from an existing fund to a new fund with different investors (LPs). The sale price was three times the invested principal. Only the investors changed, while management rights remained unchanged. This is Korea's first successful continuation fund. Han & Co reinvested 450 million USD through its 3rd fund, while 500 million USD was invested by overseas investors such as Kohlberg Capital and Goldman Sachs, and the remaining 500 million USD was handled by Mirae Asset Securities, the Teachers' Pension, and the National Agricultural Cooperative Federation. The industry is paying attention to this case as a successful example of mid-term recovery while maintaining corporate growth value in a depressed market. However, concerns remain due to the difficulty of construction market recovery amid high interest rates and rising cost burdens.